Why do we bother with depreciation if no money actually leaves the business?

You are right that no cash moves. That is exactly why the concept exists, and seeing the reason makes the whole topic easier to hold onto.

The problem it solves

A business buys a machine for 50,000 that will last five years. The cash leaves once, in year one. But the machine helps earn revenue in all five years.

If you charged the whole 50,000 as an expense in year one, that year would show a huge loss and the next four would look unrealistically profitable. None of those five figures would describe the business honestly.

Depreciation spreads the cost across the years that benefit from it. That is the matching concept: match the cost of something against the revenue it helps produce. Everything else in the topic is machinery for doing that.

It is not a valuation

This is the misunderstanding worth clearing up early. Depreciation does not attempt to tell you what the asset is worth, and the carrying amount in the accounts is not a market price. A three-year-old van carried at 8,000 might sell for 11,000 or for 5,000, and the accounts are not wrong either way.

Depreciation is cost allocation, not revaluation. Once that lands, questions asking "does the balance sheet show the value of the business" stop being confusing: the answer is no, and depreciation is a good example of why.

The double entry, and why it looks odd

Each year you post:

• Debit Depreciation expense (income statement)
• Credit Provision for depreciation (a separate account)

The credit does not go to the asset account. The machine stays in the books at its original 50,000 cost, and the provision account accumulates alongside it.

That is deliberate. Keeping both figures lets a reader see the original cost and how much has been written off so far. The statement of financial position then shows cost, less accumulated depreciation, equals carrying amount.

After two years at 10,000 a year: cost 50,000, accumulated depreciation 20,000, carrying amount 30,000. All three numbers are useful, and a question will often ask for the presentation rather than the calculation.

What examiners test

Three things, repeatedly.

That you charge a full year in the year of purchase — or do not — depending on the policy the question states. Read it. Some policies charge in the year of acquisition and none in the year of disposal.

That the provision accumulates. Year three's provision balance is three years of charges, not one.

That you can explain the point. A question worth four marks asking why a business depreciates its assets wants the matching concept named, not a description of the arithmetic you just did above it.